Recaps · FOMC · 15 Dec 2021, 19:00 UK

Hawkish, and bought anyway

This was the meeting where the Fed turned clearly towards tightening. It sped up the end of its bond buying and its projections showed three rate hikes in 2022. Markets had expected that, and both stocks and crypto rallied.

Decision: Wednesday 15 December 2021, 19:00 UK
Rate: Held at 0% to 0.25%
Taper: Doubled to $30bn a month, purchases end in March (Reuters)
Projections: Three quarter-point hikes in 2022 (Bloomberg)
Bitcoin at decision: $47,829

The decision

Rates stayed near zero. The change was in the bond-buying programme: the Fed doubled the pace of its taper to $30 billion a month, putting the end of purchases in March 2022. The median projection showed three quarter-point hikes in 2022. Reuters reported that the Nasdaq rose 2.15% that day, the S&P 500 1.63% and the Dow 1.08%.

Up, back, and up again

1 19:05 UK: about +2.9%
2 19:30 UK: press conference starts, back near +1%
3 20:35 UK: high, about +3.5%

Bitcoin, 5-minute candles, % from the 19:00 UK decision price. Source: Bitstamp.

Bitcoin jumped on the statement, +2.42% at 19:15 UK. Most of that faded by the start of the press conference, then the buying returned. It peaked at about 3.5% up at 20:35 UK and was +3.02% at two hours. The first hour, +1.76%, ranks #14 of 80 Fed decisions at 3.9 times a normal hour.

Change two hours after the decision, in %.

Why hawkish news lifted prices

When a hawkish move is fully expected, the decision itself can remove uncertainty rather than add it. One common explanation is that traders who had hedged against a nastier surprise unwound those hedges once the statement was out. The same pattern showed up six weeks earlier, when the Fed began its taper in November and Bitcoin rose 1.1% in the hour. A trader can learn to ask what was priced in, not just whether the news sounds hawkish.

The projections themselves turned out far too low. Three quarter-point hikes would have meant 0.75 points of tightening in 2022. The Fed actually raised rates by 4.25 points that year, starting in March, with four 75 basis point moves among them. Bitcoin's relief rally priced the plan the Fed published that evening, not the one it ended up following. That is a reason to treat a Fed-day reaction as a judgement on expectations at the time, not as a forecast.

The rally was wider than Bitcoin. Ether moved 7.7 times its normal hour and Chainlink was +8.2% at two hours. It did not turn into a lasting trend: Bitcoin was +0.36% a day later and +1.6% after a week.

Sources: release time and figures from the Federal Reserve's statement and target range (FRED DFEDTARU). Crypto: Bitstamp 5-minute candles; SPY/QQQ: IEX. No consensus forecasts are shown because they are proprietary; comparisons are with the previous release. “× normal hour” compares the first-hour move with the median move in matched quiet hours. How we measure it.